Cot­ton in­dus­try on verge of col­lapse?

Chronicle (Zimbabwe) - - Business - Harare Bureau

In­dus­try play­ers have es­ti­mated that cot­ton out­put could fell be­low 30 000 tonnes, the low­est yield since 1992 after the coun­try ex­pe­ri­enced se­ri­ous drought.

The yields will be sig­nif­i­cantly lower than 102 000 tonnes achieved dur­ing the prior sea­son and 352 000 tonnes, a record out­put achieved four sea­sons ago. This has led some an­a­lysts point­ing out that the once thriv­ing sec­tor could be on the verge of col­lapse.

The open­ing up of the cot­ton sec­tor to new play­ers was the death knell for Zim­bab­wean cot­ton. From be­ing one of global cot­ton’s top qual­ity pro­duc­ers the sec­tor has vir­tu­ally col­lapsed with pro­duc­tion lev­els down to less than 10 per­cent of nor­mal vol­umes.

The suc­cess of cot­ton in Zim­babwe was built around the Cottco in­puts credit scheme which started in 1992 and en­sured that farm­ers re­ceived ad­e­quate fund­ing, agro­nomic sup­port and qual­ity in­cen­tives re­sult­ing in 95 per­cent of pro­duc­tion com­ing through con­tract farm­ing schemes. How­ever, the con­tract scheme has col­lapsed due to ram­pant side-mar­ket­ing and in­ef­fec­tive reg­u­la­tory over­sight.

There is no longer a vi­able busi­ness case for cot­ton pro­duc­tion un­der con­tract farm­ing.

In the ab­sence of mean­ing­ful sup­port from cot­ton mer­chants, yields have crashed, thereby killing off vi­a­bil­ity and in­creas­ing lev­els of side­mar­ket­ing as farm­ers are locked in a des­per­ate strug­gle for sur­vival.

This has cre­ated a toxic down­ward spi­ral of low yields, high side mar­ket­ing and low in­puts sup­port. In light of dwin­dling pro­duc­tion lev­els, an­a­lysts say a new model for the in­dus­try was crit­i­cal to re­store its vi­a­bil­ity.

This would en­tail the es­tab­lish­ment of a state con­trolled mo­nop­oly, the Cot­ton Mar­ket­ing Board whose man­date ex­tends be­yond pri­mary cot­ton pro­duc­tion to value ad­di­tion.

The board can then con­tract a com­pe­tent op­er­a­tor, such as The Cot­ton Com­pany of Zim­babwe, to run the in­dus­try. This has the fol­low­ing key ad­van­tages.

There will be an im­prove­ment of grower yields due to the sup­ply of the cor­rect in­puts pack­age and agron­omy sup­port. Yield growth will drive grower vi­a­bil­ity and im­proved debt re­pay­ment. This growth can be achieved without re­sort­ing to risky GMO tech­nol­ogy.

The es­tab­lish­ment of the state mo­nop­oly will re­sult in the re­in­state­ment of the sea­sonal pool price and qual­ity bonus pay­ments, which will go a long in im­prov­ing crop qual­ity and sec­tor vi­a­bil­ity, thereby en­abling the coun­try to re­gain its rep­u­ta­tion for top qual­ity.

With higher yields and higher crop vol­umes, the coun­try will be able to achieve im­proved op­er­a­tional ef­fi­cien­cies and com­pet­i­tive­ness, thereby al­low­ing a higher pro­ducer price.

The US dol­lar cost base has cre­ated huge chal­lenges for Zim­babwe in terms of in­ter­na­tional com­pet­i­tive­ness due to cot­ton sub­si­dies in all the ma­jor global pro­duc­ers.

Con­se­quently, the coun­try can­not com­pete on an equal foot­ing with other global pro­duc­ers.

In this re­gard, nor­mal mar­ket forces can­not achieve com­pet­i­tive­ness for the in­dus­try. As such, it is im­per­a­tive that ef­fi­cien­cies are max­imised through economies of scale aris­ing from the con­tract­ing of a sin­gle op­er­a­tor in the mould of the for­mer CMB.

With no other cot­ton con­trac­tors, this in­stantly re­solves the chal­lenge of side­mar­ket­ing. The cre­ation of a vi­able in­vest­ment case en­ables a vir­tu­ous cy­cle of ad­e­quate in­put pack­ages, im­proved grower vi­a­bil­ity, im­proved debt re­pay­ment, higher crop size, im­proved op­er­a­tional ef­fi­cien­cies and higher in­vest­ment in the sec­tor.

Sub­si­dies Last sea­son Gov­ern­ment availed free in­puts worth $25 mil­lion but the ex­pected out­put will not match sup­port pro­vided. Gov­ern­ment has al­ready in­di­cated it will roll out a sim­i­lar scheme this year.

How­ever, in­puts sub­si­dies may not be an ef­fec­tive pol­icy in­ter­ven­tion in the ab­sence of a vi­able pric­ing in­cen­tive for the farmer.

The ram­pant abuse of free in­puts re­sults in such schemes will not achieve the de­sired ef­fect.

Clear ev­i­dence of this is the $25 mil­lion worth of cot­ton in­puts that were dis­bursed last year. Again, in the ab­sence of cor­rect agro­nomic prac­tices such as the right plant pop­u­la­tions and ad­her­ence to plant­ing dead­lines, in­puts will not achieve the de­sired ef­fect of re­viv­ing the in­dus­try.

While drought had an im­pact on the record low crop, other crops such as tobacco have per­formed ad­e­quately. So it is not enough to sim­ply at­tribute the fail­ure of the cot­ton to drought. Cot­ton is gen­er­ally a fairly drought tol­er­ant crop.

Without a vi­able price sub­sidy, there will be no in­ter­est in cot­ton farm­ing and pro­duc­tion lev­els are likely to plum­met fur­ther. Had the $25 mil­lion that was spent on free in­puts been of­fered as a guar­an­teed price sub­sidy, farm­ers would have pro­duced sub­stan­tially more and the money would have gone to gen­uine ben­e­fi­cia­ries.

Value ad­di­tion Pro­cess­ing of cot­ton into yarn, fab­rics and gar­ments rep­re­sents a low hang­ing fruit for the coun­try in terms of job cre­ation and eco­nomic de­vel­op­ment. This is a poignant ex­am­ple of the im­por­tance of the value ad­di­tion pil­lar in ZimAs­set. Zim­babwe is well po­si­tioned to ex­ploit this op­por­tu­nity due to the avail­abil­ity of lo­cal raw ma­te­rial and the lim­ited level of tech­no­log­i­cal com­plex­ity in cot­ton value ad­di­tion.

There is need, there­fore, to craft poli­cies which at­tract in­vest­ment into the sec­tor.

One such pol­icy could be to of­fer sup­ply con­tracts for gov­ern­ment’s tex­tile and cloth­ing re­quire­ments, thereby guar­an­tee­ing off-take for in­vestors in cot­ton value ad­di­tion.

Lessons can be learnt from the Asian tigers who used the tex­tile in­dus­try as a ve­hi­cle for the ac­qui­si­tion of tech­no­log­i­cal com­pe­ten­cies. In ad­di­tion to spinning, weav­ing and gar­ment man­u­fac­tur­ing, the Asian tigers ul­ti­mately di­ver­si­fied into pro­duc­tion of tex­tile ma­chin­ery.

These skills were build­ing blocks in their tra­jec­tory to be­com­ing global lead­ers in the au­to­mo­bile in­dus­try.

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